Freakonomics: Why California’s Tuition Hike Might Be a Good Thing

http://freakonomics.blogs.nytimes.com/2009/11/23/why-californias-tuition-hike-might-be-a-good-thing/

by cwan • 17 years ago

27 26 17 years ago

freakonomics.blogs.nytimes.com

jbert• 17 years ago

> The Problem for Poor Students Is Low Financial Aid, Not High Tuition

Doing the sums after the fact discards the influences on the person making the decision at the time. If you're able to take up the place and eligible for financial aid, you need to be very sure that the level of aid won't decrease (or associated costs increase) over that period.

The level of confidence a student with an income of $10k can have that ($101k - $100k) dollars is affordable to them (and will remain so over 3 years) is lower than whether ($11k - $10k) is affordable. Basically, they've got less slack to pick things up if there is an error or alteration.

Prediction: I think a price hike (with a financial aid hike) would result in a decrease in the likelihood of someone reliant on the aid taking up the place.

anigbrowl• 17 years ago

It's true that UC provides financial aid for anyone coming from a household with a total income of under $70,000, but on the other hand that single figure takes no account of family size or the highly variable cost of living in California. That cutoff might seem generous in, say, Eureka, whereas in San Francisco a $70k household income is nothing to write home about.

Not that I think such financial aid programs are a bad thing, but there is no getting away from the fact that UC fees have been vastly outpacing inflation for a while, not just since the financial crisis struck. If you entered the UC system in 2003, for example, by the time you graduated your annual tuition would have almost doubled - not exactly helpful to financial planning.

  1999-2000  $3,429
  2000-2001  $3,429
  2001-2002  $3,429
  2002-2003  $3,384
  2003-2004  $4,984
  2004-2005  $5,684
  2005-2006  $6,141
  2006-2007  $6,636
  2007-2008  $7,126
  2008-2009  $7,788
  2009-2010  $8,958
  2010-2011 $10,302

dantheman• 17 years ago

The common definition of inflation as used by most people is not correct, inflation just means an increase in the money supply. It's actual effects on prices are another due to many different factors. For instance, due to the massive advances in computers and manufacturing we've seen prices drop or stay level as the growth in the money supply has grown at a fast pace.

I agree that the actual cost of tuition has grown at an alarming pace, but we need why. Where is the money being spent, in a lot of cases you'll see that money is being spent on luxuries that are not needed in a university.

randallsquared• 17 years ago

For instance, due to the massive advances in computers and manufacturing we've seen prices drop or stay level as the growth in the money supply has grown at a fast pace.

While I agree that this is a significant part of the explanation for why the money supply has been vastly expanded without much corresponding inflation, it's really hard to show in a simple manner, and it's worryingly close to a just-so story.

anamax• 17 years ago

> That cutoff might seem generous in, say, Eureka, whereas in San Francisco a $70k household income is nothing to write home about.

There are costs and benefits to living in both Eureka and SF. It's unclear why someone who gets the benefits of living in SF should get a boost over someone who doesn't.

prodigal_erik• 17 years ago

If they aren't evaluating disposable income per child, they aren't really means-testing, and I can't think of any other reason they should care about income at all (as opposed to granting merit scholarships or something).

asciilifeform• 17 years ago

Financial aid (and other demand-side subsidies, such as scholarships and low-interest loans) is how the costs grew to their present heights in the first place.

If, say, Bill Gates routinely handed out $10K to every person who has just bought a car, what do you think this would do to the prices of cars?

req23• 17 years ago

You in no way respond to the point in the article, which is that price discrimination (as enabled by high tuitions and generous financial aid) allows you to extract more money from those able to pay more money (allowing generous financial aid).

psranga2• 17 years ago

1. Why is it a good thing to extract money from those "able" to pay more. Because the money you are extract is necessarily paid by reducing the payer's expenses elsewhere. Such a dysfunctional system already exists for healthcare. Do you want to read about college-induced bankruptcies?

2. Define "able". Are you really advocating for a situation in which middle-class family routinely scrounge to save for college, or in which parents sell their houses to pay for college?(Btw, some countries (e.g., India) have a dowry system which requires parents of girls to save from the day the child is born and obviously it sucks to be those parents).

3. The original article seems to using the poor as a "human shield" to effect an arbitrary hike in fees. The reason the universities are not supported well is that govts are wasting money. I hope that resisting tuition fee increases will also pressure govt to reduce waste.

blackguardx• 17 years ago

The problem with this analysis is that most of this financial aid is based off of FAFSA. If you happen to fall into a common circumstance, it probably works for you, but there are many exceptions where FAFSA doesn't work out.

How does one define "rich." Sure, if your parents own a jet airplane, you are probably rich, but there is much room between having a banker father and a janitor father.

In my opinion, FAFSA doesn't adequately take into account household debt or siblings' tuition costs.

req23• 17 years ago

This sounds more like sour grapes and less like analysis. The article doesn't even mention the FAFSA, but it does say that at UCB, "as tuitions have risen this past year, those from the poorest families saw their financial aid packages rise almost dollar for dollar". Do you have any data on how the FAFSA actually accounts for household debt or sibling tuition costs?

tokenadult• 17 years ago

But as institutions of higher education move to better price discrimination, they usually also move to the more data-rich and nuanced financial aid form administered by CSS PROFILE. Household debt and siblings' tuition costs can be taken into account by that model.

https://profileonline.collegeboard.com/prf/index.jsp

Zot95• 17 years ago

From the article: "while Berkeley charges $5,858 (per year in tuition and fees)."

Where did he get that from? The Education Fee for the current fall semester alone is $3,444. Berkeley, like the other UCs, comes out to about $10k per year for state residents. (reference - http://registrar.berkeley.edu/Registration/feesched.html).

adg2• 17 years ago

The author is quoting from an article he wrote in 2003.

jadence2• 17 years ago

I read this article w/ very mixed reactions.

Part of me was all for the price discrimination to help "level the playing field."

Another part of me just cringed. By making price discrimination like this the norm, the incentive to work hard for your children is greatly diminished. I know my grandparents scratched and clawed their way for every penny they could earn/save to pay for my parent's/aunt's/uncle's educations. They in term did the same for myself, my siblings, and my cousins. I am doing the same for my future children (My friends often tell me to live a little and comment about my dumpy apartment, my used furniture, etc while my savings and investments grow. No, I never skip out on the bill, not chip in for drinks, group gifts, etc)

If there is going to be price discrimination as described in the linked article why should I live so frugally for my future childrens' education? My future kids rich peers' parents will cover the extra expenses while I live lavishly now! Why should I save now and be the sucker?

How can the system help those who are disadvantaged while not indirectly encouraging people to be financially irresponsible? My gut reaction is to make educational "cheaper" for the rich while still accessible to those who really want it. Yes, I know this thought is antithesis to the linked article.

riffer• 17 years ago

From the individual's perspective, this is a valid point. However, the price discrimination decision is made by the institution, and it clearly has benefits to the institution.

In addition to raising more money, price discrimination also serves to attract better students by competing aggressively on price for students who are good but price sensitive. In this sense, the average student benefits from price discrimination.

Finally, even raising prices for the least price sensitive students increases the tuition to a small fraction of the true economic cost of education. For example, at the private school I attended the $30k/yr of tuition (this was 10yrs ago) covered approximately half of the $60k/yr per student it cost to run the school (the rest came out of the endowmment). There's a broader point here; the cost to California taxpayers of a UC education is well, well in excess of $10.3k/yr.

pyre• 17 years ago

> How can the system help those who are disadvantaged while not indirectly encouraging people to be financially irresponsible?

I think that the point is that financially irresponsible people will always be so. These people exist at all income levels. The person that 'lives it up' today usually is the person that isn't too interested in planning for the future.

dagw2• 17 years ago

On the other hand if your grandparents and parents hadn't had to save so much to send their kids to college, what else could they have done with the money? Sure they might have "wasted" it on lavish living, but they might also have invested in something (like starting a company) which could have grown and given their children an even better future.

I don't buy that "forcing" people to work hard and live frugally if they want to their kids to go to college is in any way a good thing.

jadence2• 17 years ago

Who said they didn't start their own companies? My grandparents did as did several of my aunts and uncles, as did I.

And those who didn't start their own companies didn't simply throw money under a mattress. The money was indeed invested w/ thw childrens' future as the primary reason.

furyg3• 17 years ago

How can the system help those who are disadvantaged while not indirectly encouraging people to be financially irresponsible?

I'm going to take a potentially unpopular opinion here, but I think that a public system of education shouldn't concern itself with either of those two problems, and should instead operate on the principles of: (1) providing education, (2) to everyone, (3) equally.

The current trend of tuition hikes tend to violate (2) and compensating for this by engaging in price discrimination tends to violate (3).

To achieve all goals, tuition for a public university needs to be something that a graduate from said institution can reasonably repay without an undue burden; all students should pay the same rate; any further subsidization of a particular student's tuition by the public should be based on performance or assisting students in particular disciplines; and loans should be offered to all students.

adg2• 17 years ago

The article only talks about how tuition hikes affect the very poor and the very rich. But what about the middle class?

If the distribution of parental household income is normal, then wouldn't hikes significantly hurt a large portion of college students; i.e. the ones who aren't receiving aid and whose parents aren't rich?

ericamzalag• 17 years ago

There is something fundamentally flawed when we discuss a system where budget cuts must be made because of gross misspending in other areas of the state budget. The solution should be to attack the source and clean up California's budget, not raise tuition fees and scare off potential students. With California's (and the U.S') budget in such a deep hole, is it fair to rely on the HOPE that a raise in tuition will be consistently matched with an equivalent raise in financial aid? Poor decisions lead to more poor decisions....

Freakonomics: Why California’s Tuition Hike Might Be a Good Thing

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